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Understanding The Debt Ceiling

5:46 PM, Oct 15, 2013   |    comments
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UNDATED -- For the past few weeks, we've heard a lot about the debt ceiling. But do you know what it really is? We're going to go through a couple key things about the debt ceiling that Money Talks News says everyone should know.

First: What it is! It's actually pretty simple.

When you spend more than you make, your only option to pay the bills is borrowing money. But like with our personal bills, there's a cap, or a ceiling, on their credit line -- the amount the U.S. can borrow. That ceiling can't be increased without Congressional permission.

So how much do we owe? Right now the debt is $16.9 trillion  and climbing. And if doesn't get raised, the government will be forced to do what every household in America does -- and decide which bills to pay and which to delay.

So what's the worst that can happen? Those creditors not getting paid will refuse to deal with us and those still getting paid will demand higher interest rates because we're riskier to be in business with. That means interest rates on U.S. Treasury bills, notes, and bonds will increase immediately. Not to mention, the markets would likely crash. The dollar's value would also drop -- which means higher prices for imports, like oil. 

But a key point to remember, in the 96 years since congressional approval has been required to increase the debt ceiling, Congress has NEVER refused to raise the debt ceiling.

WFMY News 2/Money Talks News

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